I’m traveling outside the country but I am never far from the latest financial market update. I saw today’s market move and with the sluggish start to the New Year in stocks, I thought I’d drop you all a line with my thoughts.
While many are surprised by the market’s decline this year, hopefully our readers were well prepared. Since January 1st this year, we have been suggesting that a 10% correction was in the cards. After a year like last year, more volatility is typical. When the first 10% correction comes along after a long period without one, history tells us that on average a 16% decline occurs.
At the same time, while this volatility is not unexpected, stock market years after 25%+ gains usually generate positive returns by the end of the following year. So just walking away based on the historical tendency for some volatility is not an effective option.
So far there is nothing to suggest that the correction story will turn into a crash. Earnings are actually better than expected on average. Interest rates have plunged rather than rise as many expected. And the recent sell off has actually dissipated much of the overbought exuberance left over from last year.
Yes, there is the emerging markets story, the tapering, the negative seasonality, and the bad ISM figures today. But there are always reasons that the analysts give after the damage occurs. That’s what they get paid for. Just remember that it has very little predictive value!
While one can never be sure when these declines will occur, the comforting fact for investors whose accounts are managed by an active manager is that the actively managed strategies are risk managed and already have built into them defensive moves. So last week we saw more money market funds being bought, our seasonality index moved out of the market, and today’s monthly Fusion trades were more conservative and had a number of inverse fund and money market fund purchases across the suitability profiles.
And should the market begin to recover and the clouds pass over, the strategies will automatically begin taking on more risk again. That’s the advantage of having a firm of over 80 employees dedicated to providing you with dynamic, risk-managed investment solutions.
All the best,
Jerry
Disclosures© Flexible Plan Investments
